A _____ is a capital budgeting model that considers the time value of money when evaluating proposed projects.

Question

Quizplus · Accepted Answer

Discounting models, such as net present value (NPV) and internal rate of return (IRR), take into consideration the time value of money by discounting future cash flows back to their present value. This allows for a more accurate evaluation of proposed projects as it accounts for the fact that money today is worth more than the same amount of money in the future. A cash flow model simply looks at the cash inflows and outflows of a project without taking into account the time value of money. A nondiscounting model does not consider the time value of money either. A rate of return model, such as the accounting rate of return (ARR), does not explicitly incorporate the time value of money although it does use financial information to determine the rate of return on a project investment.

A _____ Is a Capital Budgeting Model That Considers the Time